Mr. John Corrigan:

Thank you, Chairman. In the interests of brevity - I understand I have about ten minutes - my opening statement will be an abbreviated version of the written statement I made to the inquiry.

So, by way of background, the NTMA has a number of diverse functions, all of which are clearly defined in legislation. A common theme running through all of its functions, with the exception of its State Claims Agency, is its engagement with capital markets. Its original mission was to fund the Exchequer borrowing requirement and manage the national debt in a cost effective manner. This mission has been added to by various Governments over the years. The additional function most relevant to the banking crisis was the NTMA's role as manager of the National Pensions Reserve Fund, NPRF, and I was the director responsible for the fund up to December 2009. The NPRF was controlled by the National Pensions Reserve Fund Commission, a body corporate which was independent in how it made its investment decisions. When I was appointed CEO of the NTMA in December 2009, I became an ex officiomember of the commission. The legislation governing the fund was amended in 2009 in the context of the banking crisis to enable the Minister for Finance to direct the commission to make investments in Bank of Ireland and AIB. In reporting on the fund's investment performance, the commission clearly delineated between the performance of those investments which it had made under its own discretionary powers and the so-called discretionary investments in Bank of Ireland and ... or directed investments in Bank of Ireland and AIB. The NTMA had no role in relation to the oversight of the banking system and no responsibility in relation to the provision of liquidity to the system. We believed that the role of lender of last resort fell to the Central Bank and ECB.

2007-2008: The function of the interbank money markets became increasingly problematic through 2007, culminating in the UK in September 2007 in the collapse of Northern Rock, a financial institution which heavily relied on non-retail funding in a way not dissimilar to Anglo Irish. There were sharp falls in 2008 in the share prices of Irish banks with, for example, the share price in Anglo Irish falling by 18% in one day. These falls reflected concerns about the impact of the continuing fall in Irish property prices on the banks' earnings and also the wider international background of non-functioning money markets. In September 2008, the NTMA was invited to attend, with the Department of Finance, meetings of the domestic standing group and, depending on my availability, I attended meetings of that group. The deteriorating liquidity position of the Irish banks, in particular Anglo Irish and INBS, was the group's biggest concern and, on foot of those concerns, the Department of Finance put in hand, as a contingency measure, the drafting of legislation providing for a scheme for bank and building society nationalisation.

On 14 September 2008, Lehman Brothers filed for bankruptcy. Around that time, the Minister for Finance asked the NTMA to retain corporate finance advisers in the area of bank resolution. I was involved in procuring the services of Merrill Lynch in that context. Merrill Lynch subsequently provided advice which formed an input to the deliberations culminating in the Government decision to guarantee the deposits and debt liabilities of six domestic financial institutions, the covered institutions. As the committee is aware from evidence given by my colleague, Brendan McDonagh, the NTMA was not involved in the deliberations of 29 and 30 September.

While the guarantee helped the covered institutions, in particular Anglo Irish, to attract funding through the interbank market and retail deposits, at least in the near time ... term, the share prices of the quoted banks continued to perform poorly, signalling continuing market concerns about their profitability and possible requirements for fresh capital. In a statement issued on 30 November, the Minister for Finance said that, in certain circumstances, it would be appropriate for the State, through the National Pensions Reserve Fund or otherwise, to consider supplementing privately sourced additional capital for the covered institutions. On Saturday 13 December 2008, with my colleague Brendan McDonagh, I attended a day-long meeting in the Department of Finance, where the question of bank recapitalisation was considered. We pressed strongly at that meeting for the nationalisation of Anglo Irish, which was also the approach recommended by Merrill Lynch. In the event, the view that Anglo should be recapitalised, rather than nationalised, prevailed. A Government announcement on 21 December 2008 on recapitalisation said that there would be an initial State investment of €1.5 billion in Anglo and that agreement had been reached with Bank of Ireland and AIB that each would issue €2 billion of preference shares to the State. At the request of the Minister for Finance, I was heavily involved in the discussions with Bank of Ireland and AIB, leading up to that announcement.

At the outset of those discussions, the banks resisted the suggestion that they needed fresh capital and, in particular, the provision of capital by the State.

2009: The proposed recapitalisation of Anglo was abandoned with a statement by the Minister for Finance on 15 January 2009 that it would be taken into public ownership citing "a weakening in its funding position and unacceptable practices". In the meantime, there were ongoing discussions with Bank of Ireland and AIB on how their €2 billion capital injections could be achieved. Against an international backdrop of banks generally increasing their core tier 1 capital, it was agreed in discussions, which I chaired, that the State would provide €3.5 billion core tier 1 capital for each bank through preference shares. It was the view of the NTMA that, given its bigger balance sheet, AIB was likely to require more capital than Bank of Ireland but AIB stuck to its view that its problem was no bigger than Bank of Ireland and that it would only recommend to its shareholders a deal based on its quantum of additional capital being the same as Bank of Ireland’s. The Minister for Finance decided that the €7 billion of capital was to be provided by the NPRF. The NTMA engaged PwC and Arthur Cox to undertake due diligence on the two banks. To help us oversee this exercise we retained Sir Andrew Large, a former deputy governor of the Bank of England, as a "trusted adviser". In response to a request from the Minister, the due diligence exercise was tasked with forming a judgment with respect to the probability of each bank’s core tier 1 capital being above the regulatory minimum at end-2011 and with identifying matters or issues which might reasonably be considered of a "red flag" nature.

The National Pensions Reserve Fund Commission reported in March 2009 to the Minister on Bank of Ireland. The due diligence results indicated that there was a reasonable prospect that, allowing for the proposed capital injection of €3.5 billion by way of preference shares, the bank's core tier 1 capital would be above the then current regulatory minimum 4% at end-2011. The National Pensions Reserve Fund Commission reported the Minister on AIB in May 2009. The results painted a doubtful picture about whether the bank would be above its regulatory capital minimum of 4% at end-2011. The Minister directed that both capital injections be proceeded with and the NTMA, on behalf of the NPRF, executed on them.

As CEO of the NTMA, I was an ex officio member of the NAMA board from its inception in 2009 and, in its early days, was heavily involved with Brendan McDonagh in recruiting its senior management team. I believe that the decision to set up NAMA was the correct one and, based on the NTMA’s engagements with institutional investors and the credit rating agencies. I am strongly of the view that its success played a huge role in Ireland later regaining access to the debt capital markets.

In June 2009, the Minister for Finance invested €3 billion in share capital of Anglo Irish. The Minister invested a further €1 billion later that year. These investments were made in cash drawn from the Exchequer and the NTMA was not involved in their execution. As the committee will be aware, subsequent capital injections were made in the form of promissory notes. The use of the promissory notes had the advantage that their redemption by the Exchequer was spread out over a 20-year period, thereby easing the pressure on the NTMA to access capital markets. At end-2009 Ireland remained relatively highly rated by the major credit rating agencies, notwithstanding downgrades over the previous 18 months in response to the deterioration of the public finances and the very evident stress in the banking system. Ireland was broadly rated AA or equivalent, but generally with a negative outlook. The NTMA raised €35.4 billion in long-term funding in 2009.

2010: In February 2010, the Minister for Finance announced his intention to delegate certain functions in the banking area to the NTMA. This announcement stated "All of these functions will be carried out on behalf of the Minister, and in close consultation with the Minister and relevant officials in his Department and building on the existing very close co-operation between the two organisations." The initiative to delegate the function was the Minister’s own and was not in response to representations by the NTMA. From a policy setting point of view, very little changed in reality with the Department maintaining a tight grip on policy issues, albeit with input from the NTMA, among others. However, the delegation order brought all of the covered institutions operationally within the remit of the NTMA. Following the making of the delegation order, the NTMA built up a banking unit staffed by experts in banking, bank analysis and corporate finance. In March 2010 the Central Bank announced that banks would be required by year-end to meet a base capital ... core tier 1 capital ratio of 8%. The Central Bank also announced the results of a prudential capital adequacy review, PCAR, which indicated that both Bank of Ireland and AIB had additional capital requirements. The AIB requirement was further increased in September 2010 based on experience of the actual discount rate or haircut applied by NAMA. The NTMA banking unit was involved in executing, on behalf of the NPRF, the necessary transactions, which, in the case of Bank of Ireland involved private sector capital, to address the capital shortfalls. The Central Bank also identified significant additional capital requirements for Anglo, INBS and EBS.

The extent of the additional capital requirements and, in particular, the huge loss announced by Anglo during this period were major factors in Ireland subsequently having to withdraw from the bond markets.

The NTMA's funding and debt management unit raised €19.9 billion in long-term funding in 2010. We concentrated a significant portion of our long-term borrowing programme in the earlier part of the year in order to maximise the advantage to the Exchequer of the good terms for Irish sovereign debt which existed at the start of the year. As a result, the NTMA had achieved its borrowing target for 2010 before conditions deteriorated markedly during the final quarter of the year and we had to cancel auctions which were scheduled for October and November. At end 2010, not least because of Ireland’s entry into the EU-IMF programme, Ireland’s credit rating was barely investment grade and, indeed, one rating agency subsequently marked it down to sub-investment grade. The tone of eurozone sovereign bond markets was severely damaged in October 2010 when, at an EU summit in Deauville, Chancellor Merkel and President Sarkozy said that holders of eurozone sovereign debt should be forced to take losses or haircuts as part of any debt restructuring.

I was a member of the team of Irish officials who were directed by the Minister for Finance to hold discussions with the EU Commission, ECB and IMF in mid-November 2010. At the time, there were ongoing substantial losses of corporate and retail deposits by the Irish banks. In response to a request from the Minister for my views on whether Ireland should apply for an EU-IMF programme, citing the severe liquidity strains on the banking system and the risk of a collapse of the system, I wrote to him on 21 November 2010 recommending that an application be made. I said I envisaged that such assistance would provide for a capital strengthening of the banking system and, although likely to be expensive, would also provide sizable funding to the State. I stressed that appropriate liquidity support from the ECB would be a necessary complement to a decision to apply. Unfortunately, such liquidity support was, in my view, only grudgingly provided by the ECB to the extent that their public utterances could have been much more supportive.

On Saturday 27 November 2010, I wrote again to the Minister, at his request, furnishing comments on the proposed programme of financial assistance with particular reference to its implications for debt sustainability. I said that the €35 billion earmarked in the proposed programme for proposed ... for potential capital injections in the banking system would, if implemented, substantially increase the risk of sustainability of the national debt. I recommended that, with a view to mitigating the extra burden on the Exchequer represented by such additional borrowing, the question of a formal bail-in should be considered through aggressive liability management or a resolution regime with respect to the subordinated debt and senior unguaranteed debt on the banks' balance sheets. Together with the Secretary General, Department of Finance, and the Central Bank Governor, I attended part of the Government meeting held that night where consideration was being given on whether to accept the proposed terms of the programme to be told by the Minister that the question of a formal bail-in, which he himself apparently had favoured, had been flatly rejected at a meeting earlier that day of the G20 in Korea, a fact of which I was not made aware until then.

2011-2012: As part of the conditions of the EU-IMF programme, the Central Bank undertook in early 2011, under the supervision of the ECB, a further PCAR exercise. In the context of mitigating the cost to the State of providing further capital support to the banking sector which was expected to arise for that ... from that exercise, and for which, as I mentioned already, €35 billion had been earmarked, the NTMA commissioned a study to look at a bail-in-burden-sharing scheme involving senior as well as subordinated debt holders in the covered institutions. The scheme identified substantial potential savings, depending on the level of discount or haircut applied. For the scheme to proceed, the support of the troika was critical but once again such support was not forthcoming. Nevertheless, liability management exercises were pursued through 2011, which helped mitigate the cost to the State of the Central Bank's 2011 PCAR, the results of which were announced on 31 March and which identified an additional capital requirement of €24 billion. During the first quarter of 2011 the NTMA banking unit conducted the sale by auction of the deposit books of both Anglo Irish and INBS.

Following the entry into the EU-IMF programme and an announcement in February 2011 by the Minister for Finance to second the NTMA banking unit to the Department of Finance, the strategic focus of the NTMA shifted back to what we regarded as one of our core roles - funding and debt management - and the challenge of regaining access to the capital markets so that Ireland would have sufficient funding visibility at end 2013 to exit the programme. That challenge was made all the more difficult because, in addition to demonstrating that we had enough cash to meet day-to-day Exchequer needs after the end of the programme period, there was an Irish Government bond falling due for repayment in mid-January 2014 in an amount of some €12 billion, which we would have to demonstrate to the market was "money good". Irish sovereign euro denominated bond yields hit record highs in July 2011 with the yield on the two-year bond reaching 22% and that of the benchmark bond hitting 14%, implying huge falls in the market values of those bonds.

The spiking of Irish bond yields well into double-digit figures, more or less coincided with Moody's downgrading Ireland to sub-investment grade, which meant that part of Ireland's long-standing investor base was no longer open to us. We therefore embarked in mid-2011 on a vigorous programme of engagement with over 200 existing and potential institutional investors in Ireland, the UK, the rest of Europe, the US and the Far East. The investor relations programme yielded relatively early results when, in 2012, we raised €5.2 billion on the market in long-term debt, regained regular access to the short-term markets and succeeded in reducing the outstandings on the January 2014 bond to €7.6 billion. A hugely supportive development in 2012 was the statement by the President of the ECB that the ECB was prepared to do whatever it takes to save the euro.

2013: there were two further supportive developments in 2013. These were the commitment by the EFSF and the EFSM to extend the maturities on their programme loans and the replacement, on the liquidation of IBRC, of the promissory notes provided to IBRC with long-dated floating rate sovereign bonds carrying maturities of up to 40 years. The combined effects of these two initiatives was to reduce by €40 billion the amount that otherwise would have to be refinanced over the next ten years and to extend the average maturity on Ireland's public debt from seven and a half to 12 and a half years. The NTMA raised €7.5 billion in long-term debt in 2013 and reduced the outstandings on the mid-January 2014 bond to €2.7 billion. The Exchequer ended 2013 with sufficient cash and other short-term investments to cover 12 to 15 months' financing needs, facilitating the exit from the programme.

Conclusion: I believe that the NTMA responded positively to the expectation of the Minister of Finance that we work closely with him and his Department in seeking a resolution of the banking crisis. Our involvements brought us into areas which were well outside what were our core functions. The crisis was domestically generated but the complexity of its resolution was added to by the global banking crisis, which had seen the collapse or rescue of household names and the major dislocation of international bank markets. The apparent absence of crisis management skills in the ECB - in contrast with the IMF - was, I believe, also a complicating factor. Ultimately, in Ireland's case the crisis resulted in, among other things, capital markets being closed to us. Forming judgments and making decisions to try to come to grips with the crisis was obviously complicated by a lack of reliable information in a hugely volatile environment. Decision making in such circumstances can seem like trying to catch a falling knife. So, for example, it was only on the third attempt and with the benefit of knowing what the NAMA discounts or haircuts were likely to be that the banks were adequately capitalised. I trust, Chairman, that the committee will find my statement helpful. Thank you.